The Batam Electronics Factory

Professor H. Michael Boyd, Ph.D.©

In the early 1990s a major computer manufacturing and services company headquartered in the United States began implementing a plan to build an electronic component assembly factory in Batam, Indonesia. These fully-assembled components would be shipped to a factory in the U.S where they would be a part of an electronic device sub-component. Those sub-components were then shipped to a manufacturing company in Japan where they became part of a complete electronic device used in computers.

This is the final stage of the plan: Startup (1st year of operation) and Operation.

The previous stages of the plan included the business justification; the FDI analysis and plan; the factory plan and design; the capital plan; and the physical plant and logistics plan.•The factory was situated on the Indonesian island of Batam, an old small island historically used by pirates who would rob passing ships and then retreat into the mountains of the island where they couldn’t be found. The island is about 22 km across the bay from Singapore. While there is a small airport and city on the island, the mail access is by boat and water taxi. This factory is located in a very large industrial area at one end of the island.•There were about 75 large factories in the industrial complex.

List of participants

•The industrial complex includes factories owned and operated by global companies from numerous industrial countries.•The common purpose of all of the companies was to take advantage of extremely low labor costs.

•List of companies located in the Batam Industrial Park (as of 2009)

Here is the list of Companies/Tenants in Batamindo Industrial Park and their field of business: 1. Alteco Chemical Indonesia,PT — business : Aluminum Tubes, Packaging Adhesives, Fire & Paint Marker 2. Birotika Semesta (DHL Express),PT —business : Courier Services 3. Casio Electronics Indonesia,PT —business : Telecommunication Products & LCM 4. Ciba Vision Batam,PT — business : Contact Lenses 5. Daihan Labtech,PT —business : Laboratory Instrument 6. Eminent Plastics Batam Indonesia,PT — business : Plastic Manufacturing 7. E-Tech Manufacturing Indonesia,PT —business : Metal Stamping 8. Epson Batam,PT —business : Scanner Assembly, LCD Module & PCBA 9. Epson Toyocom Indonesia — business : Crystal Oscillator 10.ESG Panatec,PT —business : Circuit Breaker, Energy Saving Lamps and Air Dispenser 11.Esqarada/BSW,PT —business : Shipping & Logistic 12.Evox Rifa Indonesia,PT —business : Passive Component-Capacitor 13.Exas Batam,PT — business : Metal Stamping 14.EX Batam Indonesia,PT — business : Jack Sockets, Boards, Battery Case & Antenna 15.Fluid Sciences Batam,PT — business : Metal Seals / Bellows 16.Foster Electric Indonesia,PT —business : Audio Speaker Manufacturing 17.Fujitec Indonesia,PT — business : Elevators 18.Heng Huat Plastic Industries Ind,PT —business : Plastic Injection Moulding 19.HLN Batam,PT —business : Processing of Rubber Material, Manufacturing of Precision Rubber Parts 20.Hymold Batam,PT —business : Plastic Injection Moulding, Include Secondary Processes & Assy.Works 21.Honfoong Plastic Industries,PT — business : Plastic Injection Moulding 22.Infineon Technologies Batam,PT — business : IC Chips Testing & Packaging 23.JMS Batam,PT —business : Disposable Medical Devices 24.Japan Servo Batam,PT —business : Stepping Motors and Ice Makers,DC & AC Fant 25.Leo Industries Batam,PT —business : Plastic Injection Moulding & Electronics, Box-Build Assembly 26.Minamoto Indonesia,PT — business : Lead Frames & Fuse Holder 27.Nactec Batam,PT —business : Oil Seal 28.Nagano Drilube Indonesia,PT —business : Coating of Metal & Plastic Parts 29.Nissin Kogyo Batam,PT —business : Picture Tube Part for TV & Magnetron 30.Nobble Batam,PT —business : Variable Resistors, Potentiometers & Rotary Switch 31.NOK Asia Batam,PT — business : Sealing Products (Oil Seal) & Vibration Control Product 32.NOK Precision Component,PT —business : Rubber & Plastic Molded Product for Hard Disk Drive & Electronic Ind 33.NXP Semiconductors,PT — business : Subcontractor of RF Modules 34.Panasonic Battery Batam (PBB),PT — business : Rechargeable Battery Assembly

35.Panasonic Shikoku Electronics Batam (PSECB),PT — business : Motor of Head Disk Drives 36.Patlite Indonesia,PT —business : Emergency Lights & Warning Signals 37.PCI Electronic International,PT —business : PCB Assemblies 38.Perkin Elmer Batam,PT — business : Flash Lamps, Specially Lightings,Sensors,UV Germicidal,Scientifie Camera 39.Petrolog Harapan Abadi Semesta,PT — business : Logistics

40.Philips Industries Batam,PT —business : TV Channel Selector & Domestic Appliances Product (DAP)41.Polestar Plastic Batam,PT —business : Plastic Injection Molding42.Primo Microphones Indonesia,PT —business : Manufacturing Microphones43.Risis Indonesia,PT —business : Manufacturing Gifts & Souvenirs44.Rubycon Indonesia,PT —business : Capacitors45.Sanipak Indonesia,PT —business : Disposable Plastic Bags46.Sanmina-SCI Batam,PT —business : PCBA47.Sansyu Precision Batam,PT — business : Plastic Part Injection Moulding48.Sanwa Engineering Batam,PT — business : Engineered Plastic Product49.Sanyo Energy Batam,PT — business : Rechargeable Battery Assembly & Battery Appliances50.Sanyo Precision Batam,PT —business : Manufacturing Micro Motors/CD Brashless Motor51.Schneider Electric Manufacturing Batam,PT —business : Industrial Control Equipment52.Shimano Batam,PT — business : Bicycle Component and Fishing Rode53.Shin-Etsu Magnetics Indonesia,PT —business : Manufacturing of Permanent Magnet & Voice Coil Motors for Hard Disk Drive54.Siemens Hearing Instruments Batam,PT — business : Hearing Aid Instruments55.SIIX Electronics Indonesia,PT — business : PCB Assembly56.Solectron Technology Indonesia,PT —business : PCB & Computer Peripheral Assemblies57.Sony Chemicals Indonesia,PT — business : Flexible Flat Cables & Thermal Ribbon58.Soxal Batamindo Industries Gases,PT —business : Manufactures & Supplier of Pipe Nitrogen Gas59.Sumitomo Wiring Systems Batam Indonesia,PT —business : Wire Harness for Automobile60.Sunbird,PT — business : Warehousing61.Surya Teknology Batam,PT — business : PCB Assemblies62.Takamori Indonesia,PT —business : Metal Stamping Parts63.TEAC Electronics Indonesia,PT — business : Optical Drives & Components,PUA64.TEC Indonesia,PT — business : DOT Printers Head, Electronic Scale, Printer & PCBA Assembly65.Teckwah Paper Product Indonesia,PT —business : Corrugated Carton Boxes & Offset Printing Boxes66.Thomson Batam,PT —business : Television Tuners / Modules / Remote Controls67.Top Foam,PT —business : Manufacturing of Expanded Polystyrene Packaging Products & Vacuum Formed68.Tunas Karya Indoswasta,PT — business : Agent of Recruitment & Consultant of Human Resources69.Unisem,PT —business : Integrated Circuit Packaging & Testing Services70.Uwatec Batam,PT —business : Diving Equipment71.Varta Microbattery Indonesia,PT —business : Rechargeable Batteries Assembly72.Wireforms Batam Indonesia,PT — business : Springs, Laminated, Stamping & Multi Slide73.Yeakin Plastic Industry,PT — business : Plastic Injection Moulding74.Yokogawa Manufacturing Batam,PT —business : Electrical Measuring Instrumentation Component & PCBA CardsSource: “Batam Industrial Estate Profile” booklet, published BIFZA and BIDA in 2009

This case is about the treatment of the employees of the factory.

•There were 350 assembly employees (They were full-time legal employees.).•The assembly employees were all recruited and contracted for by an independent staffing company that provides staffing services for most of the companies in the complex.•The recruiting process is for the recruiters to travel to cities and villages throughout Indonesia and effect contractual agreements with fathers or eldest brothers of impending / recent high school graduate girls. The agreement was for the girl to be transported to Batam and work and live there in the factory for a period of two years. The girls did not have any choice.•There were 30 Production Supervisor employees. All of the supervisors were Indonesian men ranging in age from 25 to 50 years of age.•There were 20 Management and Staff employees. These employees included American, Indonesian, Singapore, and Japanese professionals and administrative staff.•The food service in the company cafeteria was provided by an external contractor. The menu, prices, schedules, etc. were specified by the company. Employees paid for their meals out of their pay.•The dormitories where the assembly employees lived were part of each individual factory’s’ complex. Each room contained two to three bunk (two-level) beds along with enough room for a desk and several chests of drawers. Each room would house four to six girls. There was, on each floor, a central cooking area.•The entire industrial complex was secured by barbed-wire fencing and security personnel.•The industrial complex included a bazaar with shops and food stores along with entertainment and other resources for complex inhabitants.

BATAMINDO

Views from the complex…………………..

It all started in Shrewsbury, Massachusetts

You had to use the water shuttle to get to the island – 22 KM from Singapore

Doesn’t look too awful:SO…..

What are the ISSUES??

The issue being addressed is the treatment of the assembly workers in the factory.

The considerations:•They were all young Indonesian women, the majority from the area of Jakarta, Indonesia. •The girls were all 18-year old teenage recent high school graduates.•The girls had very little knowledge of self-hygiene or health. Their lifestyle was unhealthy and they practiced very poor hygiene. •Most of the girls did not know how to cook. This resulted in unhealthy meals and poor nutrition.•The employees were all paid weekly in cash. All of the girls sent most of their pay home to their fathers or eldest brothers. Some sent their entire pay home.•Some of the girls became malnourished and weak.

The business issues:•The factory had experienced a high defect rate – poor quality.•The factory productivity was not improving as the startup stage progressed.•Unhealthy employees would not be as productive as needed. Factory productivity could suffer.•Hungary employees would not be as productive as needed; and would become unhealthy.•Most of the other companies in the complex were against higher wages or any employee benefit that would add to the operating cost of their factory. •Factories were interdependent inasmuch as they shared many services such as utilities, transportation, and staffing. The norm was to not create competition for these resources by differentiating. That insured that everyone got the lowest cost possible.•Fathers of recruits could contract for the factory that paid the highest wages, had the best environment, etc.•Any action to improve employee welfare would increase per-unit cost which could cause the factory business goals to be negatively impacted.

The Ethical and Moral Issues:•The owner and management of the factory is an American company. This company particularly prides itself on a very strong culture of employee welfare and care.•These assembly workers were all teenage girls far away from their home for the first time in their lives.•The behavior of the girls is entirely consistent with the culture, laws, and norms of Indonesia and their families.•The company, by building the factory there, had tacitly agreed to abide by the norms of the 40-factory complex. There was a factory practices committee made up of all the companies owning / operating factories in the complex. The areas covered included staffing.•The factory management feels responsible for the health of the girls.

The Resolution ?:1. Should the company allow the factory in Batam to take actions that would improve the health and welfare of the assembly workers?2. What are the positive results and negative results of either strategy (action or no action)?3. If the decision is to take action, what are some possible actions?

Each group will prepare its answers and present them (5 minute presentation)

SO:What Happened??

The Reality (What did happen)What the Company did.• The company decided that it would take actions that would improve the health and welfare

of its assembly employees.• The factory hired two full-time nurses who ran classes on health and feminine hygiene, and

instructed and counseled the girls on proper hygiene and nutrition.• The factory initiated a mandatory (time-paid) midday company-paid (free) large healthy meal

for all assembly employees.•

The result:• The physical and psychological health of the assembly employees (girls) improved

dramatically.• The number of girls terminating was reduced to a very low level – much lower than other

companies.• The number of operations and production problems (The factory had experienced a high

defect rate – poor quality.) was reduced to an acceptable level and improving.• Relations with other companies in the factory complex were strained because their

employees were becoming dissatisfied which could impact on productivity.• Five cents (USD) was added to the per-unit (fully assembled component) cost.